Entering college is like the first wave of independence. You’re free to live your life without your parents hounding you, and you get to enjoy the perks of making your own decisions. However, this newly found independence comes with the burden of financial responsibility and once college life is over, Bam! That’s when reality hits you, you’re deep in student loan debt.
The problem is, new graduates often don’t know how to be financially responsible. Even those who land high paying jobs usually end up spending their money irresponsibly, while creating unnecessary expenses because of some overlooked bills. If this behavior continues, chances are these new graduates will end up getting deeper into debt and only realizing their mistake a couple of years down the road.
Below are the five deadly finance mistakes that new graduates should avoid, and what they should do instead.
Finance Mistakes New Graduates Should Avoid
1 Living For Today – We’re young, we’re free, and there’s no better time to live like there’s no tomorrow, right? Wrong. Most new graduates often make the mistake of spending beyond their means and overusing their credit cards just because they know that they can pay it off later. New graduates often like to overspend on fancy things, dinner outs, and vacations while spending their money as if they were earning lots of it. The problem with this is, sooner or later the bills will catch up with you and you’ll end up shocked about how deep in debt you are. Not only does this cause undue stress, but it also affects your credit score, making you less able to get important loans, credit cards, and sometimes jobs.
2 Swiping Here, Swiping There – Credit cards can give you a feeling of financial power like no other. The problem is, this power is fake. You may look at your credit limit and see a couple of thousands you can spend, but this doesn’t mean that you should spend it. Another problem with new graduates is that they often don’t check the fine print. Most credit cards now have an introductory interest rate of 0%, which is all well and good for the first year, but after that, the interest rate can shoot up to as much as 20%, and if this goes unchecked, the graduate will be shocked to learn later on that he can no longer keep up with the interest payments.
3 What Budget? – Setting up a budget requires a lot of discipline. This is especially true when the money coming in every month is just enough to pay your rent, food, and some leisure. Many new graduates aren’t yet acquainted with budgeting skills, and most of them don’t even see the importance of doing so. However, if you don’t have a budget, you’ll end up being short on cash at the end of the month, which can either lead you to just going hungry, or it may lead you to turn to your already maxed out credit card.
4 Not Saving – College graduates are often on a tight budget with student loans to pay off and the usual living expenses. Most of them say that they can start saving when they have more money, or when they grow older. However, savings are completely vital especially when you hit financial snags. Unprecedented events, such as getting sick and hospitalized or your car breaking down, can really make you wish you had saved a little money for emergencies. These financial pitfalls can cause students to scramble for money just because they don’t have any savings to cushion their fall.
5 Disorganized Bills Payment – Probably one of the most unnecessary mistakes that new graduates make is not paying their bills on time. Because of the mountain of bills that they have to face, such as rent, electricity, water, student loan debts, credit card bills, and whatever else, new graduates fail to make a system and just end up haphazardly paying off the bills that they can remember.
The problem with this is, every bill has its own due date, and when you go past that, you’ll end up having to pay for late charges or interest. What’s worse, banks and credit unions can see you as a flaky payer, making them less willing to offer you a loan at a lower interest rate. Paying bills late not only leads to late charges, but it can also lead to a reduction of your credit card score by as much as 40 points.
These are only some of the mistakes that new graduates make with their finances. Learning about these mistakes and being more financially responsible can help college graduates to not only avoid these errors, but also to get back on their feet and work their way to financial freedom.
Did you manage your money wisely after leaving college? What were some of your biggest successes? What were some of your worst mistakes?